<PAGE>   1
                                   FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   (Mark one)

             (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended August 1, 1997

                                       OR

             ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                          Commission File No. 0-13076

                              LOT$OFF CORPORATION

            DELAWARE                                         74-2640559
----------------------------------------            ----------------------------
(State or other jurisdiction of                           (I.R.S. Employer
 incorporation or organization                           Identification No.)
                                                         

 8750 Tesoro Drive, San Antonio, Texas                         78217-0555
----------------------------------------            ----------------------------
(Address of principal executive offices)                       (Zip Code)

                           Telephone: (210) 805-9300
              ----------------------------------------------------  
              (Registrant's telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No:

                                  --------

856,080 shares of the Registrant's common stock were outstanding at August 1,
1997. On June 15, 1997, the date immediately preceding the Effective Date of
the Registrant's Plan of Reorganization, as amended and modified, there were
12,200,915 shares of the Registrant's old common stock outstanding, all of
which were cancelled on the Effective Date.

                                  --------

There are 119 pages in the sequentially numbered, manually signed original. The
exhibit index is located on page 20 . 

<PAGE>   2

                                FORM 10-Q INDEX
<TABLE>
<CAPTION>
                                                                                                                         PAGE
                                                           PART I
<S>              <C>                                                                                                      <C> 
ITEM 1.          Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     3

                 Condensed Consolidated Balance Sheets:  August 1, 1997 (unaudited);
                 January 31, 1997; and August 2, 1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . .     3

                 Condensed Consolidated Statements of Operations:  thirteen and twenty-six weeks
                 ended August 1, 1997 (unaudited); and  thirteen and twenty-six weeks ended August 2, 1996                  
                 (unaudited). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     5

                 Condensed Consolidated Statements of Cash Flows:  twenty-six weeks
                 ended August 1, 1997 (unaudited); and twenty-six weeks ended August 2, 1996 (unaudited)  . . . . . .     6

                 Notes to Condensed Consolidated Financial Statements (unaudited) . . . . . . . . . . . . . . . . . .     8

ITEM 2.          Management's Discussion and Analysis of Financial Condition
                 and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   13

                                                           PART II

ITEM 1.          Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   17

ITEM 2.          Changes in Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   17

ITEM 3.          Defaults Upon Senior Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   18

ITEM 4.          Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . . .   18

ITEM 5.          Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   18

ITEM 6.          Exhibits and Reports on Form 8-K  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   18

                 Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  .   19

                 Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   20


</TABLE>


<PAGE>   3


                                     PART I


ITEM 1.  FINANCIAL STATEMENTS


                      LOT$OFF CORPORATION AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)

                                     ASSETS


<TABLE>
<CAPTION>
                                     August 1,    January 31,    August 2, 
                                        1997         1997          1996
                                    -----------   -----------   -----------
<S>                                 <C>           <C>           <C>
CURRENT ASSETS:
Cash and cash equivalents           $   453,388   $   491,297   $   592,931
Cash in escrow                                -       330,000             -
Accounts receivable                     616,469       717,852       712,593
Merchandise inventories              11,075,402    12,974,958    28,915,488
Prepaid and other current  assets       548,792       393,526       942,334
                                    -----------   -----------   -----------
TOTAL CURRENT ASSETS                 12,694,051    14,907,633    31,163,346
                                    -----------   -----------   -----------

PROPERTY AND
 EQUIPMENT-NET                        3,816,739     3,988,760    23,391,382

OTHER ASSETS                            431,184       358,343     1,203,941
                                    -----------   -----------   -----------

TOTAL ASSETS                        $16,941,974   $19,254,736   $55,758,669
                                    ===========   ===========   ===========
</TABLE>














  See accompanying notes to these condensed consolidated financial statements.


                                     - 3 -


<PAGE>   4


                      LOT$OFF CORPORATION AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (UNAUDITED)

                 LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY

<TABLE>
<CAPTION>
                                       August 1, 1997  January 31, 1997  August 2, 1996
                                       --------------  ----------------  --------------
<S>                                         <C>          <C>             <C>
CURRENT LIABILITIES:
   Credit facility                          $       -    $  5,396,580    $ 16,967,884
   Accounts payable-trade                   1,483,017       1,381,708      14,542,527
   Accounts payable-other                   2,858,546       2,032,512       3,089,379
   Accrued expenses and
      other current liabilities             1,855,394       1,757,468       3,609,661
   Current portion of closed store
      costs                                         -               -         899,196
   Current portion of long-term debt                -         266,667       4,770,798
                                         ------------    ------------    ------------
TOTAL CURRENT LIABILITIES                   6,196,951      10,834,935      43,879,445

CREDIT FACILITY                             3,400,369               -               -
LONG-TERM DEBT, less
   current portion                          1,444,762               -               -

LIABILITIES SUBJECT TO
   COMPROMISE                                       -      30,250,544               -

STOCKHOLDERS' (DEFICIT)
   EQUITY:
   Series A preferred stock                 4,280,400               -               -
   Series B preferred stock                 3,991,050               -               -
   Common stock                                 8,561         122,009         122,009
   Additional paid-in capital              56,147,275      36,022,264      36,022,264
   Subscription receivable                          -      (3,991,050)     (3,991,050)
   Accumulated deficit                    (58,527,400)    (53,983,966)    (20,273,999)
                                         ------------    ------------    ------------
TOTAL STOCKHOLDERS' EQUITY                  5,899,886     (21,830,743)     11,879,224
                                         ------------    ------------    ------------
TOTAL LIABILITIES AND
   STOCKHOLDERS' EQUITY                  $ 16,941,974    $ 19,254,736    $ 55,758,669
                                         ============    ============    ============
</TABLE>




  See accompanying notes to these condensed consolidated financial statements.



                                     - 4 -


<PAGE>   5


                     LOT$OFF CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                                  (UNAUDITED)

<TABLE>
<CAPTION>
                                        Thirteen Weeks Ended           Twenty-six Weeks Ended
                                   --------------------------------------------------------------
                                   August 1, 1997  August 2, 1996  August 1, 1997  August 2, 1996
                                   --------------  --------------  --------------  -------------- 

<S>                                <C>             <C>             <C>             <C>        
NET SALES                          $ 10,381,017    $ 31,708,019    $ 22,300,169    $ 64,123,428
COST OF SALES                         7,213,237      22,349,660      14,933,784      45,583,056
                                   ------------    ------------    ------------    ------------

GROSS PROFIT                          3,167,780       9,358,359       7,366,385      18,540,372
                                   ------------    ------------    ------------    ------------

OPERATING EXPENSES:
  Selling, advertising, general
      and administrative              4,980,380      12,787,621      10,785,809      25,548,943
  Depreciation and  amortization        177,285         966,597         354,570       1,937,074
  Reorganization items                  200,000               -         500,000               -
                                   ------------    ------------    ------------    ------------

TOTAL OPERATING EXPENSES              5,357,665      13,754,218      11,640,379      27,486,017
                                   ------------    ------------    ------------    ------------

OPERATING INCOME (LOSS)              (2,189,885)     (4,395,859)     (4,273,994)     (8,945,645)

OTHER EXPENSE (INCOME):
   Interest income                      (17,476)        (20,573)        (42,190)        (40,239)
   Interest expense                     144,701         623,081         311,629         994,235
                                   ------------    ------------    ------------    ------------
TOTAL OTHER EXPENSE
 (INCOME)                               127,225         602,508         269,439         953,996
                                   ------------    ------------    ------------    ------------

INCOME (LOSS) BEFORE  INCOME
  TAXES                              (2,317,110)     (4,998,367)     (4,543,433)     (9,899,641)

(BENEFIT FROM)  INCOME TAXES                  -               -               -               -
                                   ------------    ------------    ------------    ------------


NET INCOME (LOSS)                  $ (2,317,110)   $ (4,998,367)   $ (4,543,433)   $ (9,899,641)
                                   ============    ============    ============    ============

INCOME (LOSS) PER SHARES OF
  COMMON STOCK                     $      (0.37)   $      (0.41)   $      (0.49)   $      (0.81)
                                   ============    ============    ============    ============

WEIGHTED AVERAGE SHARES               6,341,495      12,200,915       9,271,205      12,200,915
                                   ============    ============    ============    ============
</TABLE>






  See accompanying notes to these condensed consolidated financial statements.



                                     - 5 -


<PAGE>   6


                     LOT$OFF CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (UNAUDITED)


<TABLE>
<CAPTION>
                                                                                  Twenty-six Weeks Ended
                                                                         --------------------------------------
                                                                             August 1, 1997    August 2, 1996
                                                                         -------------------  -----------------
<S>                                                                             <C>            <C>         
CASH FLOWS FROM OPERATING
  ACTIVITIES:
Net  income (loss)                                                              $(4,543,433)   $(9,899,641)
Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
  Depreciation and amortization                                                     354,570      1,937,074
  Reorganization items                                                              500,000              -
  Non-cash interest expense on long-term debt                                             -        117,981
Changes in assets and liabilities:
  Accounts receivable                                                               101,383        417,011
  Merchandise inventories                                                         1,899,556     (1,161,523)
  Prepaid and other current assets                                                 (155,266)      (505,108)
  Other assets                                                                      (72,841)      (311,698)
  Accounts payable-trade                                                            101,309      5,947,281
  Accounts payable-other                                                           (600,469)    (1,148,744)
  Accrued expenses and other
    current liabilities                                                              97,926        329,568
  Closed store costs                                                                      -       (269,017)
                                                                                 -----------    -----------                         

Net cash provided by (used in) operating
    activities                                                                   (2,017,265)    (4,546,816)
                                                                                 -----------    ----------- 

CASH FLOWS FROM INVESTING
  ACTIVITIES:
Capital expenditures                                                               (182,549)      (433,350)
                                                                                 ----------    -----------  
Net cash provided by (used in) investing activities                                (182,549)      (433,350)
                                                                                 ----------    -----------    
</TABLE>










  See accompanying notes to these condensed consolidated financial statements.



                                     - 6 -


<PAGE>   7


                     LOT$OFF CORPORATION AND SUBSIDIARIES

                 CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
                                  (UNAUDITED)
                                  (CONTINUED)


<TABLE>
<CAPTION>
                                                             Twenty-six Weeks Ended
                                                         ------------------------------ 
                                                         August 1, 1997  August 2, 1996
                                                         --------------  --------------
<S>                                                        <C>             <C>       
CASH FLOWS FROM FINANCING
  ACTIVITIES:
Proceeds from credit facility                                28,251,967      47,791,460
Payments on credit facility                                 (30,248,178)    (42,041,627)
Payments on long-term debt                                     (266,667)       (518,070)
Net proceeds from sale of common and 
  preferred stock                                             4,094,783               -
Cash in escrow                                                  330,000               -
                                                           ------------    ------------

Net cash provided by (used in) financing
  activities                                                  2,161,905       5,231,763
                                                           ------------    ------------


Increase (decrease) in cash and cash equivalents           $    (37,909)   $    251,597
Cash and cash equivalents at
  beginning of period                                           491,297         341,334
                                                           ------------    ------------

Cash and cash equivalents at
  end of period                                            $    453,388    $    592,931
                                                           ============    ============

SUPPLEMENTAL DISCLOSURES OF
  CASH FLOW INFORMATION:
Cash paid during the period for:
   Interest                                                $    311,629    $    876,254
   Income taxes                                                       -               -

SUPPLEMENTAL SCHEDULE OF NON-CASH  FINANCIAL ACTIVITIES:
Conversion of liabilities subject to compromise to
   long-term debt                                          $  1,444,762               -
Conversion of liabilities subject to compromise to
   accounts payable-other                                  $    626,503               -
Conversion of liabilities subject to compromise to
   Series B preferred stock                                $  3,991,050               -
Conversion of liabilities subject to compromise to
   additional paid in capital                              $ 24,188,229               -
</TABLE>



  See accompanying notes to these condensed consolidated financial statements.



                                     - 7 -

<PAGE>   8

                      LOT$OFF CORPORATION AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  (UNAUDITED)

NOTE 1:           The condensed consolidated balance sheet at January 31, 1997
                  has been condensed from the audited consolidated balance
                  sheet of 50-OFF Stores, Inc. (debtor-in-possession) at
                  January 31, 1997.

                  The condensed consolidated balance sheets at August 1, 1997 
                  and August 2, 1996 and the condensed consolidated statements
                  of operations and cash flows for the thirteen and twenty-six
                  weeks ended August 1, 1997 and the thirteen and twenty-six
                  weeks ended August 2, 1996 have been prepared by the Company
                  without audit. In the opinion of management, all adjustments
                  necessary to present fairly the condensed consolidated
                  financial position, results of operations and cash flows have
                  been made. The results of operations for the twenty-six week
                  period ended August 1, 1997 are not necessarily indicative of
                  the operating results for a full year or of future 
                  operations.     

                  Certain information and footnote disclosures normally 
                  included in financial statements prepared in accordance with
                  generally accepted accounting principles have been condensed
                  or omitted. These condensed consolidated financial statements
                  should be read in conjunction with the consolidated financial
                  statements and notes thereto included in the Registrant's
                  annual report on Form 10-K for the year ended January 31, 
                  1997.   

                  On October 9, 1996 (the "Petition Date"), the Company and 
                  its significant subsidiaries filed petitions (the "Filing")
                  for relief under Chapter 11 of the Bankruptcy Code ("Chapter
                  11") in the United States Bankruptcy Court for the Western
                  District of Texas (the "Bankruptcy Court"). The Filing was
                  precipitated by the notification from the Company's then asset
                  based lenders that it was in violation of certain financial
                  covenants of their credit agreement and that such breaches
                  constituted events of default under the loan documents. See
                  Note 3. The lenders subsequently established additional
                  availability reserves, imposed certain increased fees and
                  other charges and accelerated fees deemed earned at the
                  initial closing, which, individually and together,
                  substantially impacted the Company's financial liquidity and,
                  therefore, its ability to acquire and maintain much needed
                  inventory for its stores. The Company was unable to secure the
                  resources required to cure the defaults under the loan
                  documents and to implement its business plan and effect the
                  changes believed necessary to improve operations and reverse
                  the Company's disappointing operating results without the
                  protections afforded under the Bankruptcy Code. The Company
                  continued to manage its affairs and operate its business under
                  Chapter 11 as a debtor-in-possession while a plan of
                  reorganization was formulated. 

                  A plan of reorganization ("the Plan" or "Plan of
                  Reorganization") was filed on February 26, 1997, amended on
                  March 27, 1997, confirmed by the Bankruptcy Court on June 3,
                  1997 and implemented on June 16, 1997 (the "Effective Date").
                  See Note 2. Through the reorganization, management has
                  restructured the operations and capitalization of the Company
                  in order to strengthen the Company's financial position and
                  implement its business plan.


                                     - 8 -
<PAGE>   9



NOTE 2:           On the Effective Date, certain key elements of the Plan were
                  implemented, including the changing of the Company's
                  corporate name from 50-OFF Stores, Inc. to LOT$OFF
                  Corporation ("LOT$OFF") and the cancellation of all common
                  stock in 50-OFF Stores, Inc. The Plan provided for the
                  recapitalization of the Company, partially through cash
                  raised from the Company's existing common stockholders.
                  Specifically, the Plan provided for the issuance to existing
                  common stockholders of rights to purchase units, consisting
                  of 20 shares of LOT$OFF Series A Preferred Stock and 20
                  shares of LOT$OFF Common Stock, with a minimum aggregate
                  purchase amount of $3,050,000. Contemporaneously with filing
                  the Plan, the Company filed a related disclosure statement
                  ("the Disclosure Statement") setting forth more detailed
                  information regarding the Company and the Plan. Under
                  applicable Bankruptcy Court rules and procedures, a hearing
                  was held to review and approve the Disclosure Statement which
                  was approved March 20, 1997. Upon approval of the Disclosure
                  Statement by the Bankruptcy Court, the Plan and Disclosure
                  Statement were furnished to creditors and stockholders, and
                  votes in support of the Plan were solicited. The Plan was
                  approved by both creditors and stockholders, and a Bankruptcy
                  Court order confirming the Plan was entered on June 3, 1997.
                  At the confirmation hearing on June 3, 1997, the Company
                  announced it had received more than enough subscriptions for
                  the required minimum to be met. On June 16, 1997, the Plan
                  went effective, and the Company issued 856,080 shares of
                  LOT$OFF Series A Preferred Stock (each such share has a
                  liquidation preference of $5.00, is convertible into two
                  shares of LOT$OFF Common Stock and is entitled to a 5.5%,
                  $0.275, cumulative annual dividend; LOTSP: CUSIP #545674202)
                  and 856,080 shares of LOT$OFF Common Stock (LOTS: CUSIP #
                  545674103) to subscribers to its rights offering for gross
                  proceeds of $4,280,400.

                  On the Effective Date, LOT$OFF also entered into a
                  $15,000,000 revolving credit agreement maturing on June 16,
                  2000 with General Electric Capital Corporation ("GECC"). The
                  proceeds of the facility, together with the net proceeds from
                  the rights offering, were used to refinance the Company's
                  debtor-in-possession facility, also with GECC, and to provide
                  post-confirmation working capital for increased inventories
                  for its 41 continuing stores and selected other general
                  corporate purposes, including financing LOT$OFF's exit from
                  bankruptcy. See Note 3.

                  The Company's Plan of Reorganization also provided for the
                  cancellation of all non-priority unsecured indebtedness of
                  the Company. Such cancellation caused the elimination of
                  approximately $24.9 million of unsecured debt and $3.3
                  million of collateralized debt, which was initially converted
                  to an unsecured claim, from the Company's balance sheet. Each
                  holder of an allowed general unsecured claim will, in
                  cancellation of its claim, receive a pro rata share of
                  LOT$OFF's Series B Preferred Stock (798,210 shares, having a
                  liquidation preference of $3,991,050, in the aggregate). Each
                  share of Series B Preferred Stock is convertible into two
                  shares of LOT$OFF Common Stock. Certain obligations of the
                  Company to such holders of Series B Preferred Stock will be
                  secured by two liens against potential net lawsuit proceeds
                  from significant litigation being prosecuted by the Company.
                  See Note 4. As net proceeds (net of certain items set forth
                  in the Plan) from such litigation are received by the
                  Company, holders of Series B Preferred Stock will receive (i)
                  Series A Conversion Rights, which provide for the conversion
                  of Series B Preferred Stock to Series A Preferred Stock,
                  until net proceeds reach $3,991,050 and (ii) Series A
                  Preferred Stock for net proceeds in excess of $3,991,050
                  (provided that "excess" net proceeds, as defined in the Plan,
                  will be paid in cash). The receipt of Series A Conversion
                  Rights, Series A Preferred Stock and/or cash by holders of
                  Series B Preferred Stock will result in a proportionate
                  release of the liens. By issuing such Series B Preferred
                  Stock to general unsecured creditors, such creditors are
                  essentially receiving the net value of the Company's
                  litigation which was pending pre-Petition Date.


                                     - 9 -

<PAGE>   10

                  Management has been redirecting the Company's retail
                  activities from 50-OFF's off-price retailing concept to
                  LOT$OFF's close-out retailing concept. Coincident and
                  consistent with this change has been a change in the mix of
                  products, historically a majority in family apparel, to a
                  majority in non-apparel merchandise, principally through the
                  addition of new product categories to the Company's
                  historical non-apparel offerings which include cosmetics,
                  housewares and giftware, home furnishings, shelf-stable food
                  products, toys, luggage, footwear, stationery and health and
                  beauty aids. New categories include sporting goods,
                  automotive, greeting cards, jewelry, books, party goods,
                  seasonal, pet supplies and hardware, among others. The
                  Company will continue to maintain a healthy showing of basic
                  family apparel products in the LOT$OFF stores. The actual
                  merchandise mix will fluctuate by category, by season and by
                  store based on customer needs and buying trends, demographics
                  and the availability of products at close-out prices. This
                  merchandise concept is designed to appeal to value-conscious
                  shoppers and other "bargain hunters," and management is
                  hopeful its continued implementation will lead to higher
                  initial mark-ups, less promotional pricing, fewer markdowns,
                  low inventory shrinkage, increased store traffic and improved
                  operating results.

                  The Company's ability to continue as a going concern will be
                  affected by a number of factors, including, but not limited
                  to, the need to comply with the terms, covenants and
                  conditions of its post-confirmation credit facility, the
                  degree of success in reversing the Company's recent business
                  trends (by increasing sales and operating profits) and the
                  ability to alleviate trade credit concerns and restore
                  merchandise flows to adequate levels. While management
                  believes that the recent closings of stores and the
                  implementation of expense cuts commensurate with the
                  downsizing of the total stores in operation (from 101 to 41
                  stores) facilitates its efforts to improve the Company's
                  operating performance and that the recapitalization
                  implemented on the Effective Date of its Plan of
                  Reorganization should strengthen its financial position and
                  alleviate concerns of credit and merchandise suppliers [the
                  anticipated judgment and receipt of proceeds from the
                  Company's lawsuits (see Note 4) should further strengthen its
                  financial position], no assurance can be given that the
                  Company will be successful in its continuing efforts to
                  reverse negative business trends, which have continued
                  through August 1997, and return to profitability. For this
                  reason, any investment in LOT$OFF's Common and Series A
                  Preferred Stocks should be considered speculative.

                  If the Company's plans to improve operations are not
                  successful, management will consider, among other
                  alternatives, strategic and/or financial alliances with third
                  parties and the merger, sale or liquidation of all or a part
                  of the Company.

NOTE 3:           On May 13, 1996, the Company entered into a credit facility
                  with two financial corporations providing the Company with a
                  line of credit through May 1998 of up to $22,500,000. The
                  line of credit was collateralized by inventory, accounts
                  receivable and other assets. The credit agreement contained
                  various restrictive covenants, including financial covenants.
                  On August 8, 1996, the Company was notified that it was in
                  violation of the minimum gross margin (disputed) and the
                  minimum working capital financial covenants and that such
                  breaches constituted events of default under the loan
                  documents. The Company was unable to secure the resources
                  required to cure the defaults under the loan documents
                  without the protections afforded under Chapter 11. As of
                  November 1, 1996, the Company had approximately $7,335,000
                  outstanding under the credit facility and, with the support
                  and by order of the Bankruptcy Court, was using cash
                  collateral for working capital needs. This facility was paid
                  off in November 1996 (after the Company's Filing).

                  On November 18, 1996, the Company, with the approval of the
                  Bankruptcy Court, entered into a credit agreement with GECC
                  providing the Company with a line of credit through November



                                    - 10 -

<PAGE>   11

                  1997 of up to $15,000,000. The line of credit was
                  collateralized by inventory, accounts receivable and other
                  assets. The credit agreement contained various restrictive
                  covenants, including financial covenants. This facility was
                  paid off on June 16, 1997 (the Effective Date of the Plan).

                  On June 16, 1997, LOT$OFF, with the approval of the
                  Bankruptcy Court, entered into a credit agreement with GECC
                  (amended August 28, 1997) providing LOT$OFF with a revolving
                  credit facility through June 16, 2000 of up to $15,000,000.
                  The new credit facility bears interest at a floating rate
                  equal to the published rate for thirty-day commercial paper
                  issued by major corporations (5.58% at August 1, 1997) plus
                  3% per annum and provides for an unused facility fee of 0.5%
                  per annum. Borrowings under the facility are available in
                  aggregate amounts up to 65% of LOT$OFF's eligible inventory
                  at cost for the period from August 15 through December 15 and
                  up to 60% for the period from December 16 through August 14,
                  subject to certain required reserves. The line of credit is
                  collateralized by inventory, accounts receivable and other
                  assets. The credit agreement contains various restrictive
                  covenants, including restrictions on the payment of dividends
                  on common stock. The agreement also contains minimum gross
                  margin, minimum EBITDA, minimum inventory, minimum working
                  capital and maximum capital expenditure financial covenants.
                  As of August 1, 1997, LOT$OFF had approximately $5,530,000
                  available for borrowings under the line (after reserves of
                  approximately $899,000), of which approximately $3,400,000
                  was committed, leaving a net availability of approximately
                  $2,130,000.

NOTE 4:           On February 21, 1995, the Company filed a lawsuit [50-Off
                  Stores, Inc. v. Banque Paribas (Suisse), S.A., Betafid, S.A.,
                  Yanni Koutsoubos, Andalucian Villas (Forty Eight) Limited,
                  Arnass Limited, Brocimast Enterprises Ltd., Dennis Morris,
                  Howard White, Chase Manhattan Bank, N.A. and Aries Peak,
                  Inc., Case No. SA-95-CA-0159] in the United States District
                  Court in San Antonio, Texas against Banque Paribas (Suisse)
                  S.A. ("Paribas"), Betafid S.A., Chase Manhattan Bank, N.A.
                  ("Chase") and certain affiliated individuals and companies in
                  connection with the theft of 1,500,000 shares of the
                  Company's old common stock which certain of the defendants
                  had agreed to purchase. Among other counts, the lawsuit
                  alleges securities fraud, conspiracy and conversion. The
                  conversion claim relates to actions of the defendants in
                  transferring, selling and trading the shares even though the
                  defendants have never paid for such shares. The Company seeks
                  recovery of actual and punitive damages, pre- and
                  post-judgment interest, attorneys' fees and such other
                  remedies to which the company may show itself entitled.

                  Paribas, Chase, Morris and White answered the complaint.
                  Defaults were entered against Arnass, Andalucian Villas,
                  Brocimast, Betafid and Koutsoubos for failure to appear or
                  answer.

                  Paribas moved to dismiss the action for lack of personal
                  jurisdiction, failure to state a claim and for forum non
                  conveniens. The District Court referred all pre-trial matters
                  to U.S. Magistrate Judge John W. Primomo, who denied each of
                  Paribas' motions to dismiss. U.S. District Judge H.F. Garcia
                  has adopted Judge Primomo's rulings in their entirety.

                  On March 20, 1997, Paribas answered the Company's complaint
                  asserting a number of affirmative defenses, including
                  contributory negligence. Paribas also asserted a counterclaim
                  against the Company for defamation. The Company has moved to
                  dismiss this counterclaim and strike Paribas' affirmative
                  defenses. Judge Primomo has recommended such dismissal and
                  the striking of the affirmative defenses. Judge Garcia again
                  adopted Judge Primomo's rulings in their entirety.



                                    - 11 -


<PAGE>   12


                  On June 23, 1997, Paribas moved for summary judgment. Judge
                  Primomo recently recommended that the Company be permitted to
                  proceed against Paribas on counts of securities fraud,
                  conversion and conspiracy. The Court also recommended that
                  the Company be permitted to proceed against Chase for
                  conversion. The parties have largely completed all discovery
                  and are currently preparing a joint pretrial order. This
                  matter is currently set for jury trial on October 14, 1997.

                  On January 9, 1996, the Company filed another lawsuit [50-OFF
                  Stores, Inc. v. Jefferies & Company, Inc. and Jefferies
                  International, Ltd., Cause No. 96-CI-00349] in Bexar County
                  District Court in San Antonio, Texas against the Company's
                  placement agents in the securities offering referenced in the
                  lawsuit discussed above. Among other things, the suit alleges
                  that the defendants breached their contracts with the Company
                  and breached their fiduciary duties to the Company in failing
                  to investigate properly the qualifications of the purchasers
                  they introduced to the Company. The Company seeks to recover
                  actual and exemplary damages in excess of $10,000,000, pre-
                  and post-judgment interest, costs and attorney's fees. Both
                  defendants have answered the petition and raised the
                  affirmative defense of contributory negligence. Additionally,
                  Jefferies & Company filed a cross-claim against Howard White.
                  Discovery is proceeding.

                  Soon after the Company filed for protection under the
                  Bankruptcy Code, Jefferies and White removed this case to the
                  Bankruptcy Court. The United States District Court granted
                  the Company's motion to abstain from hearing the case and
                  remanded the case back to the Bexar County District Court.

                  One June 26, 1997, the defendants moved for summary judgment
                  on all claims. Judge Peeples denied the defendant motion as
                  to the Company's breach of contract and breach of fiduciary
                  duty claims.

                  This matter has been specially set for jury trial on March
                  23, 1998. The Bexar County District Court ordered the parties
                  to conduct mediation of the case. On August 9, 1997, the
                  parties in both lawsuits conducted a mediation. Although the
                  parties were unable to resolve the lawsuits at that time,
                  settlement discussions have continued among the parties.

                  The Company will continue to prosecute these cases
                  vigorously. The Company believes its claims against these
                  defendants are meritorious. The Company, based upon advice of
                  counsel, believes that it will obtain a favorable judgment
                  against one or more of the defendants referenced in the
                  preceding two lawsuits. The Company intends to vigorously
                  pursue all remedies to collect the sums owing to the Company
                  as per any judgment obtained against one or more of the
                  defendants.

                  The Company is party to certain other legal proceedings
                  arising in the ordinary course of business, none of which are
                  believed to be material.

                                     - 12 -
<PAGE>   13


ITEM 2. MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

Results of Operations

The following tables set forth (i) certain items in the Condensed Consolidated
Statements of Operations as a percentage of net sales for the periods
indicated, and (ii) the percentage change in such items from the comparable
period of the prior year.

<TABLE>
<CAPTION>
                                                                      Percentage of Sales
                                                          ---------------------------------------------   
                                                          Thirteen Weeks Ended   Twenty-six Weeks Ended
                                                          --------------------   ---------------------- 
                                                             August 1, August 2,  August 1, August 2,
                                                               1997      1996       1997      1996
                                                            ---------  ---------  --------- ---------
<S>                                                            <C>       <C>       <C>       <C>   
Net Sales                                                      100.0 %   100.0 %   100.0 %   100.0 %
Cost of sales                                                   69.5      70.5      67.0      71.1
Selling, advertising, general and
  administrative                                                48.0      40.4      48.4      39.9
Depreciation and amortization                                    1.7       3.0       1.6       3.0
                                                                 ---       ---       ---       ---
Operating income (loss) before
   reorganization items                                        (19.2)    (13.9)    (17.0)    (13.9)
Reorganization items                                             1.9         -       2.2         -
Operating income (loss)                                        (21.1)    (13.9)    (19.2)    (13.9)
Other expense, net                                               1.2       1.9       1.2       1.5
                                                                 ---       ---       ---       ---
Total expenses                                                 122.3     115.8     120.4     115.4
                                                                 ---       ---       ---       ---
Income (loss) before income taxes                              (22.3)    (15.8)    (20.4)    (15.4)
(Benefit from) income taxes                                        -         -         -         -
                                                                 ---       ---       ---       ---
Net income (loss)                                              (22.3)%   (15.8)%   (20.4)%   (15.4)%
                                                               =====     =====     =====     =====  
</TABLE>



<TABLE>
<CAPTION>
                                         Percentage Change
                          ---------------------------------------------------------
                             Thirteen Weeks Ended          Twenty-six Weeks Ended
                          August 1, 1997 compared to     August 1, 1997 compared to
                             Thirteen Weeks Ended          Twenty-six Weeks Ended
                               August 2, 1996                  August 2, 1996
                          --------------------------     -------------------------

<S>                                  <C>                          <C>     
Net sales                            (67.3)%                     (65.2)%  
Cost of sales                        (67.7)                      (67.2)   
Selling, advertising, general                                             
   and administrative                (61.2)                      (57.8)   
Depreciation and amortization        (81.7)                      (81.7)   
Operating income (loss) before                                            
   reorganization items              (45.6)                      (42.2)   
Reorganization items                   N/A                         N/A    
Operating income (loss)              (50.2)                      (45.2)   
Other expense, net                   (78.9)                      (71.8)   
Income (loss) before income taxes    (53.6)                      (54.1)   
(Benefit from) income taxes            -                           -      
Net income (loss)                    (53.6)%                     (54.1)%  
</TABLE>


                                    - 13 -

<PAGE>   14


Thirteen weeks ended August 1, 1997 compared to thirteen weeks ended 
August 2, 1996:

The net sales decrease of 67.3% for the thirteen weeks ended August 1, 1997
compared to the thirteen weeks ended August 2, 1996 is attributable to a 59.1%
decrease in the weighted average number of stores in operation (from 100.3
stores to 41.0 stores) and a decrease in comparable store sales (due primarily
to inventory imbalances among the 41 continuing stores and the lack of
resources to effectively promote customer traffic to such stores). Also
contributing to this decrease were the increased net sales pertaining to
liquidations of inventory at thirteen 50-OFF stores in the process of
converting to LOT$OFF stores during the thirteen weeks ended August 2, 1996.

Cost of sales as a percentage of net sales decreased from 70.5% for the
thirteen weeks ended August 2, 1996 to 69.5% for the thirteen weeks ended
August 1, 1997, due primarily to lower markdowns as a percentage of net sales
as compared to the comparable period of the prior year when an approximately
$2,218,000 write-down of inventories in anticipation of 37 store liquidations
scheduled to begin in September was taken.

Selling, advertising, general and administrative expenses increased from 40.4%
of net sales for the thirteen weeks ended August 2, 1996 to 48.0% of net sales
for the thirteen weeks ended August 1, 1997 due primarily to lower sales. The
61.2% decrease in the amount of selling, advertising, general and
administrative expense compared to the thirteen weeks ended August 2, 1996 was
the result of the 59.1% decrease in the weighted average number of stores in
operation.

Depreciation and amortization decreased by 81.7% in the thirteen weeks ended
August 1, 1997 compared to the comparable period of the prior year, due
primarily to the substantial decrease in the number of stores in operation and
to substantial prior write-downs of fixed assets. In connection with the
Filing, the Company recorded as a reorganization expense in later periods of
fiscal 1997 the write-down to fair value, as determined by the Company's lender
based on the value of certain assets liquidated by the lender and on the
Company's, the lender's and an independent party's strategic review, of certain
equipment and leasehold improvements. . Other expense, net, decreased to
approximately $127,000 in the thirteen weeks ended August 1, 1997 compared to
approximately $603,000 in the comparable period of the prior year, due
primarily to decreased interest expense attributable to decreased borrowings
under the Company's line of credit, a substantially lower effective interest
rate on such borrowings and the Company's discontinuing the accrual of interest
on certain of its other obligations through June 16, 1997. . The decrease in
the Company's loss before income taxes for the thirteen weeks ended August 1,
1997 compared to the thirteen weeks ended August 2, 1996 is primarily due to
higher maintained margins (higher initial markups, less promotional pricing,
fewer markdowns and less inventory shrinkage) and lower depreciation,
amortization and interest expenses, offset, in part, by $200,000 of
reorganization expenses.

Income tax benefits related to the losses for the thirteen weeks ended August
1, 1997 and August 2, 1996 were not recognized because the utilization of such
benefits is not assured. Such benefits, if any, remaining after the Company's
reorganization, are available for recognition in future years.


                                    - 14 -

<PAGE>   15

Twenty-six weeks ended August 1, 1997 compared to twenty-six weeks ended 
August 2, 1996:

The net sales decrease of 65.2% for the twenty-six weeks ended August 1, 1997
compared to the twenty-six weeks ended August 2, 1996 is attributable to a
58.9% decrease in the weighted average number of stores in operation (from
100.4 stores to 41.3) and a decrease in comparable store sales (due primarily
to inventory imbalances among the 41 continuing stores and the lack of
resources to effectively promote customer traffic to such stores). Also
contributing to this decrease were the increased net sales pertaining to
liquidations of inventory at Oklahoma and Dallas area 50-OFF stores in the
process of converting to LOT$OFF stores during the thirteen weeks ended August
2, 1996.

Cost of sales as a percentage of net sales decreased from 71.1% for the
twenty-six weeks ended August 2, 1996 to 67.0% for the twenty-six weeks ended
August 1, 1997, due primarily to lower markdowns as a percentage of net sales
(i.e., higher maintained margins) as compared to the comparable period of the
prior year when substantial write-downs of inventories in the stores liquidated
in connection with the conversions discussed above and scheduled for late May
1996 through early July 1996 or in the 37 stores scheduled to be liquidated and
closed in September 1996 were taken.

Selling, advertising, general and administrative expenses increased to 48.4% of
net sales for the twenty-six weeks ended August 1, 1997 from 39.9% of net sales
for the twenty-six weeks ended August 2, 1996 due primarily to lower sales. The
57.8% decrease in the amount of selling, advertising, general and
administrative expense compared to the twenty-six weeks ended August 2, 1996
was the result of the 58.9% decrease in the weighted average number of stores
in operation.

Depreciation and amortization decreased by 81.7% in the twenty-six weeks ended
August 1, 1997 compared to the comparable period of the prior year, due to the
substantial decrease in the number of stores in operation and to substantial
prior write-downs of fixed assets. In connection with the Filing, the Company
recorded as a reorganization expense in later periods of fiscal 1997 the
write-down to fair value, as determined by the Company's lender based on the
value of certain assets liquidated by the lender and on the Company's, the
lender's and an independent party's strategic review, of certain equipment and
leasehold improvements.

Other expense, net decreased to approximately $269,000 in the twenty-six weeks
ended August 2, 1996 compared to approximately $954,000 in the comparable
period of the prior year, due primarily to decreased interest expense
attributable to decreased borrowings under the Company's line of credit, a
substantially lower effective interest rate on such borrowings and the
Company's discontinuing the accrual of interest on certain of its other
obligations through June 16, 1997.

The decrease in the Company's loss before income taxes for the twenty-six weeks
ended August 1, 1997 compared to the twenty-six weeks ended August 2, 1996 is
primarily due to higher maintained margins (higher initial markups, less
promotional pricing, fewer markdowns and less inventory shrinkage) and lower
depreciation, amortization and interest expenses, offset, in part, by $500,000
of reorganization expenses.

Income tax benefits related to the losses for the twenty-six weeks ended August
1, 1997 and August 2, 1996 were not recognized because the utilization of such
benefits is not assured. Such benefits, if any, remaining after the Company's
reorganization, are available for recognition in future years. As of August 1,
1997, the Company had federal tax net operating loss carryforwards of
approximately $52,875,000 expiring through 2013, alternative minimum tax credit
carryforwards of approximately $337,000 which are available to offset regular
federal income taxes in the future until fully utilized, and targeted jobs
credit carryforwards of approximately $178,000 expiring in 2006 through 2009.
As a result of the Chapter 11 proceedings and the related Plan of
Reorganization, the net operating loss (NOL) carryforwards, tax credit
carryforwards and other tax attributes of the Company will be reduced (perhaps
significantly) as a result of debt forgiveness income in accordance with


                                    - 15 -

<PAGE>   16

section 108(b) of the Internal Revenue Code (IRC). In addition, IRC section 382
limits NOL and tax credit carryforwards when an ownership change of more than
fifty percent of the value of stock in a loss corporation occurs within a three
year testing period. Under the Plan of Reorganization, the ownership of the
Company may be deemed to have changed by more than fifty percent. Accordingly,
to the extent NOL and tax credit carryforwards remain after reduction under IRC
section 108(b), the ability to utilize such remaining NOL and tax credit
carryforwards may be significantly restricted.

Store Conversion Program

The Company is proceeding with its store conversion program, from an off-price
("50-OFF") to a close-out ("LOT$OFF") retailing concept, at 17 store locations
in 13 markets. The week of August 25, 1997, such conversions were implemented
at the Company's store locations in Brownsville, Harlingen, Pharr, McAllen,
Roma and Laredo, Texas with "Grand Re-Openings" on Saturday, August 30, and
running through Labor Day weekend. The balance of the conversions (in
Albuquerque, Baton Rouge, Bossier City, El Paso, Memphis, New Orleans and
Shreveport) are scheduled for the week of September 28 with "Grand Re-Openings"
planned for Saturday, October 4. Upon completion of these conversions, the
Company will have all 41 of its stores (Texas, Louisiana, Oklahoma, New Mexico
and Tennessee) converted to the Company's new store name ("LOT$OFF") and
retailing concept.

Liquidity and Capital Resources

The Company began fiscal 1998 with cash of $491,297. During the twenty-six
weeks ended August 1, 1997, the Company decreased borrowings by a net of
$1,932,878, used $2,017,265 in operating activities, used $182,549 for capital
expenditures in refurbishing existing stores and converting ten 50-OFF stores
to LOT$OFF stores, received net proceeds of $4,094,783 from its rights offering
and ended the period with cash on hand of $453,388.

On June 16, 1997, LOT$OFF, as part of its Plan of Reorganization and with the
approval of the Bankruptcy Court, entered into a credit agreement with GECC
(amended August 28, 1997) providing LOT$OFF with a revolving credit facility
through June 16, 2000 of up to $15,000,000. See Note 3 of "Notes to Condensed
Consolidated Financial Statements," above. As of September 8, 1997, LOT$OFF had
approximately $6,270,000 available for borrowings under the line (after
reserves of approximately $895,000), of which approximately $4,361,000 was
committed, leaving a net availability of approximately $1,909,000.

The Company believes borrowings available under its revolving credit facility,
trade credit, its restructuring of certain obligations under the Plan, its
operating cash flow and its cash on hand, together with the net proceeds from
the rights offering (see Note 1 of "Notes to Condensed Consolidated Financial
Statements," above), will be adequate to finance its operations, including
increased inventories for its 41 continuing stores, to convert the remaining 17
50-OFF stores to LOT$OFF stores and for other general corporate purposes,
including financing the balance of the Company's exit from bankruptcy
(estimated to require, as of September 8, 1997, approximately $735,000,
approximately $500,000 of which will be paid over approximately four months)
through the remainder of fiscal 1998. No assurance can be given, however, that
such sources of capital will be sufficient or that the Company will be
successful in its continuing efforts to reverse recent business trends and
return to profitability. The receipt of proceeds from the significant
litigation brought by the Company could add significantly to the Company's
capital resources and liquidity (see "Significant Litigation," below).

If the Company's plans to improve operations are not successful, management
will consider, among other alternatives, strategic and/or financial alliances
with third parties and the merger, sale or liquidation of all or a part of the
Company. See Note 2 of "Notes to Condensed Consolidated Financial Statements,"
above.



                                    - 16 -

<PAGE>   17

Significant Litigation

The Company has filed a lawsuit related to certain parties' breaches of
contractual obligations to purchase 1,500,000 shares of the Company's old
common stock and actions in misappropriating and removing these shares from an
escrow account prior to payment for such shares. The Company intends to
vigorously prosecute this matter and to pursue all available avenues to effect
the receipt of payment for such shares, plus actual and punitive damages. The
Company, based upon advice of counsel, believes that it will obtain a favorable
judgment or result in this court action. See Note 4 of "Notes to Condensed
Consolidated Financial Statements," above, for further discussion of this
matter and information pertaining to a related lawsuit filed by the Company
against the placement agents. Both suits are being handled by counsel on a
contingency basis.

Seasonality

Historically (excluding fiscal 1997), the Company's highest net sales and
operating income have been experienced during the fourth fiscal quarter, which
includes the holiday selling season. Any adverse trend in sales or shortage of
merchandise during such period could have a material adverse effect upon the
Company's overall profitability and adversely affect its results of operations
for the entire fiscal year.

                                    PART II

ITEM 1.  LEGAL PROCEEDINGS

See Note 4 of "Notes to Condensed Consolidated Financial Statements," herein,
regarding lawsuits filed in February 1995 and January 1996. Such lawsuits were
also reported in the Company's annual reports on Form 10-K for the fiscal years
ended February 3, 1995, February 2, 1996 and January 31, 1997.

The Company is a party to certain other legal proceedings arising in the
ordinary course of business, none of which are believed to be material.

ITEM 2. CHANGES IN SECURITIES

On October 9, 1996 (the "Petition Date"), the Company and its significant
subsidiaries filed petitions (the "Filing") for relief under Chapter 11 of the
Bankruptcy Code ("Chapter 11") in the United States Bankruptcy Court for the
Western District of Texas (the "Bankruptcy Court"). A plan of reorganization
("the Plan" or "Plan of Reorganization") was filed on February 26, 1997,
amended on March 27, 1997, confirmed by the Bankruptcy Court on June 3, 1997
and implemented on June 16, 1997 (the "Effective Date"). On the Effective Date
certain key elements of the Plan were implemented, including the changing of
the Company's corporate name from 50-OFF Stores, Inc. to LOT$OFF Corporation
("LOT$OFF") and the cancellation of all common stock in 50-OFF Stores, Inc. The
Plan provided for the recapitalization of the Company, partially through cash
raised from the Company's existing common stockholders. On June 16, 1997, the
Plan went effective, and the Company issued 856,080 shares of LOT$OFF Series A
Preferred Stock (each such share has a liquidation preference of $5.00, is
convertible into two shares of LOT$OFF Common Stock and is entitled to a 5.5%,
$0.275, cumulative annual dividend; LOTSP: CUSIP #545674202) and 856,080 shares
of LOT$OFF Common Stock (LOTS: CUSIP # 545674103) to subscribers in its rights
offering for gross proceeds of $4,280,400. The Company's Plan of Reorganization
also provided for the cancellation of all non-priority unsecured indebtedness
of the Company. Such cancellation caused the elimination of approximately $24.9
million of unsecured debt and $3.3 million of collateralized debt, which was
initially converted to an unsecured claim, from the Company's balance sheet.
Each holder of an allowed general unsecured claim will, in cancellation of its
claim, receive a pro rata share of LOT$OFF's Series B Preferred Stock (798,210
shares, having a liquidation preference of $3,991,050, in the aggregate). Each
share of Series B Preferred Stock is convertible into two shares of 

                                    - 17 -

<PAGE>   18


LOT$OFF Common Stock. Certain obligations of the Company to such holders of
Series B Preferred Stock will be secured by two liens against potential net
lawsuit proceeds from significant litigation being prosecuted by the Company.
See Note 4 to "Notes to Condensed Consolidated Financial Statements," herein.
As net proceeds (net of certain items set forth in the Plan) from such
litigation are received by the Company, holders of Series B Preferred Stock
will receive (i) Series A Conversion Rights, which provide for the conversion
of Series B Preferred Stock to Series A Preferred Stock, until net proceeds
reach $3,991,050 and (ii) Series A Preferred Stock for net proceeds in excess
of $3,991,050 (provided that "excess" net proceeds, as defined in the Plan,
will be paid in cash). The receipt of Series A Conversion Rights, Series A
Preferred Stock and/or cash by holders of Series B Preferred Stock will result
in a proportionate release of the liens.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 5.  OTHER INFORMATION

On October 9, 1996, the Company and its significant subsidiaries filed
petitions under Chapter 11 of the Bankruptcy Code in the United States
Bankruptcy Court for the Western District of Texas. A Plan of Reorganization
was filed on February 26, 1997, amended on March 27, 1997, confirmed by the
Bankruptcy Court on June 3, 1997 and implemented on June 16, 1997.

ITEM 6   EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits:

                  Exhibit 10.6 - General Electric Capital Corporation Revolving
                                 Credit Agreement 
                  Exhibit 10.7 - First Amendment to General Electric Capital 
                                 Corporation Revolving Credit Agreement
                  Exhibit 27.0 - Financial Data Schedule

No other exhibits are required to be filed by the Registrant under Item 601 of
Regulation S-K with this report on Form 10-Q.

(b)      Reports on Form 8-K

There were no reports on Form 8-K filed during the quarter ended August 1,
1997.


                                    - 18 -

<PAGE>   19

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized:


                                           LOT$OFF CORPORATION


                                           By: /s/ Charles J. Fuhrmann II
                                               ----------------------------- 
                                               Charles J. Fuhrmann II, 
                                               Chairman, President and Chief 
                                               Executive and Financial Officer


                                           By: /s/ James G. Scogin
                                               -----------------------------
                                               James G. Scogin, Vice-President,
                                               Controller, Chief Accounting 
                                               Officer, Treasurer and Secretary

                                    - 19 -

<PAGE>   20


                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
                                                                                                  Page
<S>                                                                                                <C> 
Exhibit 10.6 - General Electric Capital Corporation Revolving Credit Agreement . . . . . . . . .    21
Exhibit 10.7 - First Amendment to General Electric Capital Corporation 
               Revolving Credit Agreement  . . . . . . . . . . . . . . . . . . . . . . . . . . .   114
Exhibit 27.0 - Financial Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   119

</TABLE>



                                       20